Central Banks & Local Currencies

by Lorne Mitchell on 11/08/2011

Living in Kent in the UK, I have always been fascinated by local currencies and hop tokens. These were issued by local farmers to the hop pickers who came down from London – and could only be spent in the local village or on local beer (provided by the farmer!). However unfair, this really was localism in action!

So it is, as Europe and the US faces its currency crisis, trying to payoff old debts with a money system that is totally broken, it becomes so interesting to look to history and the so-called Wörgl experiment. This was conducted from July 1932 to November 1933 and is a classic example of the potential efficacy of local currencies in a time of financial crisis.

Wörgl, a small town in Austria with 4000 inhabitants, introduced a local scrip during the Great Depression. By 1932 unemployment in Wörgl had risen to 30%. The local government had amassed debts of 1.3 million Austrian schillings (AS) against cash reserves of 40,000 AS. Local construction and civic maintenance had come to a standstill. On the initiative of the town’s mayor, Michael Unterguggenberger, the local government printed 32,000 in labor certificates which carried a negative 1% monthly interest rate and could be converted into schillings at 98% of face value. An equivalent amount in schillings was deposited in the local bank as cover for the certificates in case of mass redemption and earned interest for the government.

The certificates circulated so rapidly that only 12,000 were ever actually put into circulation. According to reports by the mayor and economists of the day who studied the experiment, the scrip was readily accepted by local merchants and the local population. It utilized the scrip to carry out 100,000 AS in public works projects involving construction and repair of roads, bridges, tanks, drainage systems, factories, and buildings. The scrip was also accepted as legal tender for payment of local taxes.

In the one year that the currency was in circulation, it circulated 13 times faster than the official shilling and served as a catalyst to the local economy. The heavy arrears in local tax collection declined dramatically. Local government revenue rose from 2,400 AS in 1931 to 20,400 in 1932. Unemployment was eliminated, while it remained very high throughout the rest of the country. No increase in prices was observed. Based on the dramatic success of the Wörgl experiment, several other communities introduced similar scrips.

In spite of the tangible benefits of the programme, it met with stiff opposition from the regional socialist party and from the Austrian central bank, which opposed the local currency as an infringement on its powers over the currency. As a result the program was suspended, unemployment rose, and the local economy soon degenerated to the level of other communities in the country.

So there is a way out of the currency crisis – if only we looked to history and suppressed the central banking systems. I cannot see the dollar and euro surviving in their current state for much longer without some re-thinking. Makes you think what we could do if we took localism to the next stage of its natural development.